Zimbabwe considers debt cancellation

Zimbabwe is considering a request to have its debt with the multilateral lenders, World Bank and International Monetary Fund to be cancelled in order to reduce burden on the country's fragile economy.

Debt either at household and national level is a huge burden which incapacitates financial freedom and economic growth and development.

Zimbabwe total debt, both domestic and external, stands at over US$16 billion and the government's priority is to deal with this debt as a matter of urgency.

During his meetings in Bali, Indonesia with the IMF and World Bank, the Minister of Finance and Economic Development Professor Mthuli Ncube proffered debt forgiveness for Zimbabwe by these institutions as a way of dealing with debt which continues to choke Zimbabwe's economic growth prospects.

Economist Mr Persistence Gwanyanya says Zimbabwe qualifies for debt cancellation as it is a highly indebted poor country, using the Paris Club criteria.

"Before the rebasing of the country's economy by the Zimbabwe national statistical agency (Zimstat) to at least US$25 billion, Zimbabwe had one of the highest debt to GDP ratio at over 100 percent. This qualifies Zimbabwe to be a highly indebted poor country using the criteria of the Paris Club institutions, that is, the World Bank and the IMF," said Mr Gwanyanya.

Mr Gwanyanya also said being tagged a highly indebted poor country (HIPC) comes with repercussions for the country.

"The problem with debt forgiveness is that you lose your financial and economic independence because everything gets dictated to you by those who forgive you the debt," Mr Gwanyanya said.

The other challenge with debt forgiveness is that you become less attractive for foreign direct investment (FDI) and you become less creditworthy as a country.

Mozambique had its debt cancelled in the early 2000s but that did not solve its economic problems and now it finds itself with a high amount of unserviceable debt.

The authorities therefore need to carefully apply their minds before they go the HIPC route.